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Big Deficits in Baucus Health Care Plan

Big Deficits in Baucus Health Care Plan

By Robert Robb - September 22, 2009

While being roundly criticized from all sides, the health care reform advanced by Sen. Max Baucus is widely thought to at least have the virtue of not adding to the deficit. That's because the Congressional Budget Office, the official scorer for such things, says it is so.

But it ain't so. Or, more precisely, it is highly implausible that it would be so.

To understand why, you first have to disregard the ten-year cumulative figures that are the center of the discussion in Washington. All health care reform proposals ramp up over time. So, the only way to assess their fiscal impact is to look at them on an annual basis after they are fully operational.

The last year of the CBO's analysis is 2019 and in that year the Baucus plan is fully operational. In 2019, according to CBO, the various health care subsidies in the Baucus plan - expansion of Medicaid and tax credits for the individual and small group markets - will total $166 billion.

According to CBO, the various tax increases and spending reductions elsewhere in the plan fully offset this increase.

That's on paper. In real life, it won't happen.

A big hunk of the offset, $53 billion, is projected to come from the 35 percent tax Baucus proposes on high-value health insurance plans. Such a tax, however, will completely change the incentives regarding such plans.

Right now, employer-provided health care benefits are deductible to the business and not taxable as income to the individual. So, the incentive is to move as much of compensation into them as possible.

Baucus imposes the tax on the insurance company, but this is a slight-of-hand. The insurer will try to shift as much of the cost as possible to the employer, who will in turn shift as much of the cost as possible to the employee. The incentive, then, becomes to maximize health insurance benefits up to the point that the tax will be triggered.

There may be other benefits of such a tax, for instance in controlling costs. But in terms of producing revenue, it's likely to bring in closer to zero than $53 billion.

The Baucus plan also includes, in 2019, $52 billion in savings from reductions in payments to Medicare providers, excluding physicians. This is an old game Congress plays. It cuts such payments, on paper, when it needs to show future cost reductions in exercises like this. But when it comes time to actually impose the savings, Congress relents.

The CBO, which is an agency of Congress, can't say to Congress: We don't believe you. If Congress says it is going to cut provider payments, CBO has to score it as if it is going to happen.

The rest of us are not similarly constrained. And Baucus' plan offers plenty of reason not to believe this promise of provider reductions.

In a similar exercise in the past, Congress showed paper savings by cutting Medicare physician payments by 25 percent. Baucus' bill restores this cut in 2010, because he knows that without restoration, doctors will quit taking Medicare patients. And then seniors will beat their representatives senseless.

The cut, however, returns fully in 2011 under his bill and remains in effect through the remainder of the decade.

Other health care reform bills have been more honest and reflected higher Medicare physician payments throughout the period. That's one of the reasons why Baucus is able to show a smaller overall cost. What he acknowledges is necessary in 2010, he pretends will be unnecessary for the rest of the decade.

In the real world, rather than in CBO's paper exercise, the Baucus plan will undoubtedly run annual deficits in excess of $100 billion a year, once fully operational.

The American people are very worried about the fiscal condition of the federal government. The Democrats are trying to skate by this concern on health care reform with phony pledges of deficit neutrality.

It's a cynical game.

Robert Robb is a columnist for the Arizona Republic and a RealClearPolitics contributor. Reach him at robert.robb@arizonarepublic.com

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